Exotic Options on Smart Contracts solving DeFi Issues

Transcript

[Music] foreign [Music] hi my name is Arissa and I'm one of the co-founders and CEO of Sega which is a D5 protocol that focuses on creating exotic options on smart contracts because of the technical issues I'm going to go through my presentations pretty quickly and we are not going to have q a in this stage but if you do have any questions for me after this I will be right outside this stage so please come up and ask away so today I wanted to talk about D5 derivatives it is a very small market right now especially after the FTX collapse and to be honest it is so small

that a lot of VCS a lot of people actually don't really think about this market right now it's only three billion dollars in size but it has a huge potential in traditional Finance derivatives is literally a 22 trillion dollar market and so by tapping into the potential for D5 derivatives we're literally able to create an entirely New Capital Market that I'm really excited about and D5 currently experiences a lot of issues and I'm sure a lot of you here are familiar with them the first is that there's a lot of forking there's a lot of products that are just same across all boards we talk about lending and

borrowing there's like 20 different products that addresses the same people and addresses the same problem we see a lot of ponzinomics and we see that a lot of yields have just not been a really attractive and defy anymore and then there's also the lack of unchain liquidity which we see that you know a lot of market makers the one who provides liquidity in the market actually do not prefer to do things on chain and we also see that smart contracts have a lot of limitations right now and then lastly we see a lack of decentralization so I think some of you notice meme where D5 is supposed to be autonomous and

completely decentralized but when you actually look under the surface so many D5 Protocols are centralized and so this is the hypothesis that we have at Sega which is that exotic option smart contracts solve these three existing D5 issues the issues of product Innovation on-chain liquidity and decentralization it's a pretty bold statement so let's see how it actually works out how does defy exotic derivatives solve these Prime issues in defy so first sorry for this wall of text but you know I think there's a lot of people here who probably are interested in

exotic options but have not actually looked into exactly how they work and exotic options basically solve this first problem of product Innovation and lack of high yields and lack of good yields because it allows for a more flexible view in the market that allows for a customized incentivization an example of an exotic option is something that allows for a different payoff depending on what happens during the path of the trade rather than just at the maturity in a normal option the right but not an obligation to buy or sell an asset at a certain price at a certain time you only look at the price at the very end in order to assess the

value of your payoff but a type of exotic options for instance would look at all of the values in the middle of the trade up until the expiry of the trade and by doing so you're actually able to create things like kpi based payouts for team incentivization or you can average out volatility and actually be able to have a view on an alternative coin but not necessarily have to go through the ups and downs of its great volatility another thing is you can track the performance of more than just one index and so an example of this is a basket option where you can put small

capitalization tokens with blue chip tokens like BTC or eth and it could really create this package that also allows for a good yield but not necessarily a very risky investor profile and lastly you can also have some type of exotic option where you can change the settlement between cash or physical delivery of the actual tokens an example of this is dual currency swaps where by actually putting this in you can create a structure where people are able to receive appetizing assets even if the markets are not attractive one of the user insights we hear from

Sega users is that you know for instance they are not super keen on Doge or Shiba Inu coins but during the bull market they do want that upside but if the market tanks they do not want to be holding on to their Dojo Shiva they actually want to be holding on to say eth and so this last exotic option actually allows you to hold on to eth if the market goes down but you can still capitalize on the upside of these more volatile assets and so by implementing exotic options you can create a more flexible view on the market and have a really high yield as a result while also being able to manage your risks and you can also use exotic options to create larger trade volumes across

Market so exotic options help with the issue of the lack of on-chain liquidity Exotics basically is the epitome of complex Financial derivatives and if you trade an exotic option it requires you to hedge that position with vanilla options Perpetual Futures and also spot and so if you drive more volume of exotic options it actually exponentially drives the volume of every other asset class in derivatives underneath and so you're able to increase the on-chain liquidity significantly through having Exotics and so more derivatives

more liquidity more liquidity more derivatives it is a flywheel and lastly Exotics on chain allows for a trustless permissionless operations one of the most incredible things is that in a 27-day trade you actually have to observe an exotic option say 27 times if it's like a daily option and it actually is incredibly costly in traditional Finance where this average structure would require almost close to like 108 000 US dollars to manage that position and this is just like a back and envelope calculation but it's it's so so expensive and by putting it into smart

contracts you're literally making that cost zero and then even if you enter into a smart contract Insurance to try to make the technical risk much lower you're still you know able to cut down your cost by over 50 which is a incredibly incredibly interesting use case for institutional defy and so there's so much different ways that exotic options can actually solve issues in D5 and today Sega I want to talk about a little bit about Sega which is the protocol that created the first exotic option smart contracts so sega's mission is to create safer yields in volatile Market environments

and if you want to check us out it's app.sego.fi we recently launched um on ethereum and arbitrum and if you have any more questions I'll be right outside the stage um ready to answer them thank you very much [Applause] foreign [Music]